Bankers: Commercial Refi's Not As Busy As Residential
During the past few years, refinancing of residential mortgages has jumped to historically high levels.
A recent weekly survey by the national Mortgage Bankers Association found that about 70 percent of all residential mortgage activity involves refinancing.
But according to local commercial mortgage brokers, businesses have not been engaging in the same flurry of activity.
Despite there still being low interest rates, local bankers say that businesses usually have to be urged to refinance their commercial real estate loans or debt. They don't just do it for the heck of it.
"People in business spend money because they need to or because it creates a financial opportunity," said Brian Thompson, president and CEO of Worcester-based Commerce Bank. "They don't borrow because rates are low. They borrow because they have a need."
In terms of commercial loans for new equipment or cash flow expenses, the activity is still fairly stagnant, bankers said.
"There just isn't a lot of demand," said Robert J. Paulhus Jr., president and CEO of Clinton Savings Bank.
One of the biggest drivers for commercial bankers right now is competition from other banks, he said.
Because of a lack of new customers entering the market, some bankers are trying to scoop up customers from other banks. They offer lower-rate loans, then the customers come back to their original bank and ask for a similar offer.
Paulhus and Thompson said banks are willing to work with customers to refinance, but it's not always as easy as just switching to a lower-interest rate loan.
There are also other factors to consider. If one loan is extended or is switched to a lower interest rate, it could impact the terms and conditions of other loans the business holds, Paulhus noted.
It's important to research all of the consequences of refinancing to see if it really makes sense, Paulhus said.
Meanwhile, on the commercial real estate end, a drop in the value of properties has supplied a steady flow of refinancing activity, Thompson said. It hasn't been as intense as what's been seen on the residential side though.
Overall, Thompson said most customers are paying interest rates on commercial real estate loans that are within the market range because rates have been depressed for such an extended period of time.
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